CAPE TOWN, A team of Cabinet Ministers has been brought together to come up with solutions to stabilise South Africa’s rising national debt over the next three years, the National Treasury says.
In his Medium Term Budget Policy Statement presented to Parliament here Wednesday, Finance Minister Malusi Gigaba said the government would adhere strictly to the spending limit which it had set itself.
A combination of fiscal measures and economic interventions is needed to grow the economy, address immediate challenges facing the public finances and reduce long-term risks. A team of Cabinet ministers reporting directly to the President has been established to develop proposals to stabilise the national debt over the medium term.
The National Treasury said this would include proposals to narrow the deficit, stimulate economic growth and build investor confidence. The team of Ministers will work to ensure the spending ceiling remains intact in the current year.
A broader set of asset disposals is also under consideration, along with a restructuring of the portfolio of public assets to reduce risks posed by contingent liabilities. A new framework for the management of guarantees is being developed. Additional measures to reduce expenditure, raise revenue and improve the impact of public resources on economic growth will be announced in the 2018 Budget.
As a result of revenue shortfalls, the consolidated budget deficit for 2017/18 is expected to rise to 4.3 per cent of the gross domestic product (GDP), compared with a 2017 Budget estimate of 3.1 per cent. The main budget deficit, which determines the government’s net borrowing requirement, will be 4.7 per cent of GDP this year.
In contrast to projections set out in the last budget, the revised projection is for the deficit to remain at this elevated level over the next three years. On this estimate, gross national debt is projected to continue rising, reaching over 60 per cent of GDP by 2022.
National Treasury said in this context, the government is faced with difficult choices. To offset revenue shortfalls and reduce borrowing, the contingency reserve has been pared down to 16 billion Rand over the next three years. This leaves government little room to manoeuvre if risks to the expenditure ceiling materialise,” it noted.
Beyond this, it is likely that some programmes will need to be eliminated, or their funding reduced. South Africa’s stated policy aspirations and its social needs far exceed available public resources. Moreover, there is little space for tax increases in the current.
The National Treasury said that over the past four years, the government had followed a path of measured fiscal consolidation, aimed at stabilising the debt-to-GDP ratio by reducing spending and introducing tax increases.
This strategy was met with some success as reflected in a narrowing primary deficit. However, debt continued to rise as a share of GDP as economic growth rates declined. The Treasury said any new policy proposal, or expansion of existing programmes, should address only the most effective and necessary interventions.
Source: NAM NEWS NETWORK